TY - JOUR
AU - Hallward-Driemeier,Mary
AU - Khun-Jush,Gita
AU - Pritchett,Lant
TI - Deals versus Rules: Policy Implementation Uncertainty and Why Firms Hate It
JF - National Bureau of Economic Research Working Paper Series
VL - No. 16001
PY - 2010
Y2 - May 2010
DO - 10.3386/w16001
UR - http://www.nber.org/papers/w16001
L1 - http://www.nber.org/papers/w16001.pdf
N1 - Author contact info:
Mary Hallward-Driemeier
World Bank
1818 H Street, NW
Washington, DC 20433
E-Mail: mhallward@worldbank.org
Gita Khun Jush
University of Chicago
5416 S. Woodlawn Avenue
Chicago, IL 60615
E-Mail: gkhunjush@uchicago.edu
Lant Pritchett
Harvard Kennedy School
79 JFK St.
Cambridge, MA 02138
Tel: 617 496 4562
E-Mail: lant_pritchett@harvard.edu
M1 - published as Mary Hallward-Driemeier, Gita Khun-Jush , Lant Pritchett. "Deals versus Rules: Policy Implementation Uncertainty and Why Firms Hate It," in Sebastian Edwards, Simon Johnson, and David N. Weil, editors, "African Successes: Government and Institutions" University of Chicago Press (2014)
M3 - presented at "African Development Successes", December 11-12, 2009
AB - Firms in Africa report "regulatory and economic policy uncertainty" as a top constraint to their growth. We argue that often firms in Africa do not cope with policy rules, rather they face deals; firm-specific policy actions that can be influenced by firm actions (e.g. bribes) and characteristics (e.g. political connections). Using Enterprise Survey data we demonstrate huge variability in reported policy actions across firms notionally facing the same policy. The within-country dispersion in firm-specific policy actions is larger than the cross-national differences in average policy. We show that variability in this policy implementation uncertainty within location-sector-size cells is correlated with firm growth rates. These measures of implementation variability are more strongly related to lower firm employment growth than are measures of "average" policy action. Finally, we show that the de jure measures such as Doing Business indicators are virtually uncorrelated with ex-post firm-level responses, further evidence that deals rather than rules prevail in Africa. Strikingly, the gap between de jure and de facto conditions grows with the formal regulatory burden. The evidence also shows more burdensome processes open up more space for making deals; firms may not incur the official costs of compliance, but they still pay to avoid them. Finally, measures of institutional capacity and better governance are closely associated with perceived consistency in implementation.
ER -